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time management 🙁
thefutures price and the spot price had a large basis difference… that put me off a lil bit…
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Had it possible to complete first question?
My weighted asset beta was about 1 (0.99), Geared Beta was 1.45. Cost of equity was about over 10.7% (please dont quote me, i think it was that, i cant remember now but i think so)
WACC was then about 9% because we are told FCF to Firm not FCF to Equity (FCFE) so discount factor should be WACC.
This is just what i think it should be. Even if you didn’t get the WACC, I am told we will still get marks for our thought process.
I hope/pray we make it . Good-luck to us all.
Thanks
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How did you guys go about part b & c for q3?
b) Implication for Share holders of parent company (M Co) for 50% premium as compared to 30%
c) Otherwise additional cash that was required and how could the parent company arrange it?Btw Weighted average was on MK of shares right, I think we can work it out again:
Shares of M (Parent Company) 210 Million, Price/Share= 5.8
Shares of S (Target Company) 200 million, Prince/share= 2.4
Be was same = 1.2
M’s Ba was 0.9 & S’s Ba was 1.2.Risk Free Rate was 4% & Market Risk Premium was 9%.
Now, since we are given the PREMIUM we wont deduct RFR right? 4+ 9*Be for Ke
Kd was 4.55%I think we can work out WACC…
Yes Time management was as ever a problem. I answered q2 and q3 first and then I was only left with 1 hour and 15 minutes for question 1. This paper was fair though and better then the June paper. Hopefully this time I have passed, feeling confident. I believe I got 9% for the WACC on Q3 also. The cost of equity may have been 10.4% but as it was a cashflow to firm you then had to WACC it once you did this then you came to 9%.
The first question was too long, too many variables to compute and the time was too short. Spent too much time trying to attempt question 1. Question 2 , i got it mixed up. I know we had to both strike prices of 94.50 and 95.00 ( so means 2 calculations), but with interest rate going to be up or down by 0.09% against the bank offer rate,made me to think does that mean 4 different answers? I did 4 answers as i could. Question 3, got a WACC of 9% (hope it is correct).
Honestly, the paper was too long for 3 hours. U needed an extra hour. But I hope I make it.
Hi, lakeside!
How do you arrive at 9% in q3?
I ve calculated weighted average asset beta of 1. Then regear to equity beta of 1.6 (if I am not mistaken). Cost of equity then appeared to be 10,4%. Anyone?)- Topics: 0
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The first question was about foreign investment and real option.(It took 2 hours 🙁 )
The second was about hedging FRA, futures and futures. Delta hedging.
The third was about acquiring company. Acquisition 3.
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I thought it was a fair enough paper…I agree, it was just the time management I got stuck on. Took too long on question 1, ok for q 2 and then rushed through question 3.
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Hope I could get 10marks for Q3…
I tought that the second question had some snag somewhere?? (or did i miss something?)
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i got 10.4 wacc in question 3 also
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for the 1st question – what was your answer for the business risk ? also was there put or call option? what was your Pa = is it NPV of the project at year 2?
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first question was easy wat u think guyz ? if u do the article there were not many adjustment there apart for inflation and we have to adjust the rate spot rate through the formula?
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what were the benefits and drawbacks for WTO in 1st question?
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it was put option as we were selling the investment pe was offer 28 m and pa was pv of clasflows and rest is given risk free we take as rate on debt and 0.35 votality is given year 2
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yes i wanted to question 1 and 3 pleae tell question 2 i made a mess because of time mangement
A very fair paper!! Much better than past exams questions that I have seen. The pass rate for this paper should be the best I guess. Yes it was time pressured, but I guess with rigorous question practice that shouldn’t be a problem. Time and again ACCA and training providers have reiterated the need to practice questions in exam time. I wasn’t that well prepared though and don’t think will clear but am happy about the fairness of the exam.
Oh well. Not feeling very positive about P4.
Forgot to add the nrv of land & buildings on the cash flow, but added it back in at the end.
I wasn’t sure if I should include a 5% rebate for the tax agreement in $. Left it out and stated assumption that no other overseas revenue to net off against.
Think npv ended up over $30m (with adj for l&b).
Also think I messed up the exch rates as used 72 as year 1 in PPP calc then decided that I needed a year 0 in npv so used 72 for year 0 and year 1. Stated that I considered purchase of machinery to occur at the end of the year and didn’t have indication of when NOW is and when production would begin.
Black Scholes – must’ve done something wrong as I came up with a negative answer!
Explained that it would be a poor decision to make as npv of project up to the 2 years concerned was not enough to justify sale.
Took 2 hours also!!
Q2 was a toughie after all that and my head was so messed up I couldn’t think straight.
Couldn’t even really think of the delta answer.
So I worked out what I could – contract no etc guessed at closing futures price and gave 2 outcomes based on up/down base rate!!
Q3 was a mind screw again. Combined co valuation came out lower than the 2 market values added together!
Got 0.9 for weighted beta, then 1.5 for geared beta then 21% Ke. Wacc came out at 14.? So used 14%
Wrote down that shareholders won’t be happy with higher premium as it devalues their shareholding.
If I pass this I will track down the examiner and kiss him !!!- Topics: 0
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2nd question if it was related to borrowing than he gave than question will becom very easy than i would pass iwth good parks somehow now hangin between 55 to 50
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